Percentiles Are Not People

Kevin, over at Truck and Barter, has a post that makes an important distinction between the rich and the poor and how that changes over time. For instance, he points to the overused phrase “the rich get richer and the poor get poorer” and notes that, if you compare the groups’ composition over thirty years you find that they are not the same people. We have a dynamic economy and people that were in the top 5% of earners — or in wealth — might not stay there long.

I consider the income spread unimportant anyway. The underlying assumption is that the ones at the top are somehow taking from the ones at the bottom. Not true. Wealth is created, not absconded with — except by government, of course. The more important measure is whether the people at the bottom are seeing consistent growth in their income and for that you need a growing economy, high productivity and low unemployment.

The people that wring their hands over the distribution of income are falling into the same trap as the people who embrace the lump of labor fallacy: that, in this case, there’s a fixed amount of income to be had. When GDP grows, national income grows and how that growth is distributed is determined by numerous factors that I couldn’t even begin to explain. What I can say is what I said above: lower income people need a growing economy, high productivity and low unemployment to see consistent growth in wages.

No comments yet.

Leave a Comment